Restaurant Expansion Financing — What You Should know
The COVID-19 pandemic caused the restaurant and hospitality industry to take a big hit in 2020. Many businesses had to close their doors, with some shuttering for good. But, if you could stay afloat, there’s a light at the end of the tunnel. Because so many people were “cooped up” for over a year, many restaurants are seeing a post-pandemic “boom.”
If you run a successful restaurant, it’s normal to think about expansion. Opening up a new location is an exciting endeavor and can boost your success exponentially. But, if you opened one restaurant, you already know it’s a challenge. Opening a second location can be just as challenging but certainly not impossible – as long as you make the right financial steps beforehand.
What are the steps towards financing for restaurant expansion? What financial factors should you consider before expanding your business to a new location? Let’s dig into a few of the big ones.
Evaluate Your Situation
If you’re considering a restaurant expansion, your finances are likely “in the black.” Maybe you’re doing quite well, and that’s what triggered your idea for a second location in the first place.
But, it’s crucial to start your restaurant expansion journey by seeing just how well you’re really doing. Evaluate your finances to ensure you have enough capital for an expansion without over-exerting yourself. You still have one restaurant to take care of, and you know how easily unexpected expenses can come up.
Some people are concerned about a second recession with the way inflation keeps rising. If you have any financial assets like stocks or real estate, consider how you could divert them if you plan to expand.
Simply put, having a strong “rainy day fund” should be a crucial component of your financial evaluation. No one knows what the economy will do in the next several months. If your current financial situation can’t handle that uncertainty, it may be wise to wait on a second location. If you think your finances are in order and you could make it through a recession while expanding, you can move on to the next step.
Work With a Professional
Chances are, you didn’t get into the restaurant business to crunch numbers. You might have some basic accounting knowledge, but that’s not enough to really weigh the pros and cons and get into every financial detail that comes with expanding your business.
To protect yourself and your investments, you should talk to a professional before making any big financial decisions. After you’ve evaluated your situation, bring those numbers to an accountant or financial consultant and explain what you’re trying to do.
Not sure which type of financial expert you should meet with? There are differences to keep in mind, depending on your needs.
An accountant can help your business manage things like:
- Cash flow
Your current restaurant might already utilize an accountant you trust to take care of payroll issues and keep you within your budget.
A financial consultant is responsible for giving evidence-based advice and recommendations that can help you increase your revenue and optimize your spending. They’ll weigh the risks of an investment for you, including opening a new restaurant.
It’s not a bad idea to work with both of these professionals when you’re considering an expansion. But, a financial consultant will paint a clearer picture about what an expansion will cost and what you can expect.
Use Your Resources
If you decide to expand your restaurant, you have several options when it comes to financing. First, don’t be afraid to dig into resources that might be available to you. Small business grants/loans are a great way to get the money you need right away so you can start working on your new location. If you’re able to secure a grant, you won’t have to pay it back. But, you’ll need to have a sound business plan and likely work with local, state, or federal sources.
Because you already have one successful location, you can use that success to save money for expansion, too. It will take more time than getting a loan. But, it will also reduce the amount of debt your new location will start with.
Crowdfunding has become extremely popular in recent years. It’s expected to be a $300 billion industry by 2025, so it shows no signs of slowing down. Asking for support from your patrons, friends, and family is a great way to get the funding you need quickly. Make sure that you’re providing incentives for people to donate. That could include things like:
- Restaurant gift certificates
- A “VIP” experience
- A private dinner
If you have the support and people are excited about a second location, you shouldn’t have a problem securing funds this way (and running it with your new marketing plan, too — win, win!).
Restaurant Expansion Financing — Concluded
Being successful enough to expand your business isn’t something every restaurant owner gets to experience. So, it’s okay to congratulate yourself! But, take the right steps toward restaurant expansion financing and be patient with the process. Doing so will give you a bigger reward with less debt to worry about when you finally cut the ribbon on your new establishment.
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About the Author
Beau Peters is a creative professional with a lifetime of experience in service and care. As a manager, he’s learned a slew of tricks of the trade that he enjoys sharing with others who have the same passion and dedication that he brings to his work. When he is not writing, he enjoys reading and trying new things.